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Fallout: The Financial Crisis

Why hedge funds are starting up again

Amy Scott Jun 16, 2009
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Fallout: The Financial Crisis

Why hedge funds are starting up again

Amy Scott Jun 16, 2009
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TEXT OF STORY

Kai Ryssdal: There’s a school of thought that says a down economy is the perfect time to take risks. To go out on a limb and see if you can’t grab more market share or bump up your profit margins. Counter-intuitive though that may be, that’s exactly what’s happening in the hedge-fund industry. Even though the average fund lost nearly 20 percent last year and skittish investors are still pulling their money out, and new regulations are probably right around the corner, Marketplace’s Amy Scott reports new hedge funds are opening all over the place.


AMY SCOTT: John Brynjolfsson spent 20 years at PIMCO. It’s one of the country’s largest money managers. But four months ago he launched a new hedge fund called Armored Wolf. With the competition taking a beating, Brynjolfsson says the market was ripe with opportunity and good people.

JOHN BRYNJOLFSSON: We’ve been able to attract and retain world-class talent, moving out from the major financial centers of London or New York or San Francisco to join us here.

Roughly 150 hedge funds were born in the first quarter of this year. But raising money hasn’t been easy. And more hedge funds have closed than opened. Kristin Fox is a consultant to hedge funds and their investors.

KRISTIN FOX: People are gun-shy. Between the education factor, and just plain the fear factor, the money is slow coming back in.

Much of it’s going to big names in the business. Bloomberg News reports today that an ex Deutsche Bank trader has raised more than a billion dollars for his new fund. Charles Gradante tracks the industry at the Hennessee Group. He says pension funds and endowments are one source of cash. Having lost 30 percent in the stock market last year, he says many are moving money into hedge funds since they can profit in both good and bad markets.

CHARLES GRADANTE: If you’re a pension plan, and the baby boomers are now retiring in droves, you are Bambi at the brook. And the gun pointed at you is the stock market.

Hedge funds are off limits to most of us. But their revival could help ease the recession. The money they pour into the system could lubricate the markets and get credit flowing again.

In New York, I’m Amy Scott for Marketplace.

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